Annuities and Chapter 7 Bankruptcy

An annuity is a written agreement, typically with a life insurance company, in which the insurance company makes a series of regularly spaced payments in exchange for a premium or premiums that have been paid. Annuities are great tools for retirement. While young and working the person pays premiums and then when they retire, they get periodic payments from the life insurance company.

Annuities are generally exempt under California Code of Civil Procedure §703.140(b)(10) and California Code of Civil Procedure §704.110 and 704.115. California Code of Civil Procedure §703.140(b)(10) makes exempt “The debtor’s right to receive… A payment under a stock bonus, pension, profit-sharing, annuity, or similar plan or contract on account of illness, disability, death, age, or length of service, to the extent reasonably necessary for the support of the debtor.” California Code of Civil Procedure §704.110(b) makes annuities exempt to the extent they are part of a public retirement plan and California Code of Civil Procedure §705.115 makes annuities exempt to the extent they are part of a private retirement plan. There are even instances where an annuity can qualify as a life insurance policy and certain exemptions may apply there as well.

Here is the problem. Some annuities are single-premium annuities. These annuities are funded by one payment. Usually, it’s a large sum from retirement savings, a settlement, or another financial windfall. In Chapter 7 Bankruptcy this is not seen as an annuity which is exempt. This is seen as an investment which is not exempt.

If you are a debtor and you are thinking about filing Chapter 7 bankruptcy and you have an annuity you really need to speak to someone who understands these financial mechanisms and how they work within a Chapter 7 bankruptcy.